Limited of the Contract to Manage Wembley Arena
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Completed acquisition by AEG Facilities (UK) Limited of the contract to manage Wembley Arena ME/5886/13 The OFT’s decision on reference under section 22(1) given on 22 March 2013. Full text of decision published 22 April 2013. Please note that the square brackets indicate figures or text which have been deleted or replaced in ranges at the request of the parties or third parties for reasons of commercial confidentiality. PARTIES 1. AEG Facilities (UK) Limited ('AEG Facilities') is a subsidiaryi of the Anschutz Entertainment Group Inc ('AEG'). AEG is a leading provider of live entertainment services around the world, including live entertainment venues and sporting venues, the provision of venue management consultancy services, the promotion of live entertainment acts (including sporting events), retailing of live entertainment tickets, merchandising, marketing and advertising services. AEG’s live entertainment venues in London comprise: The O2 Arena and IndigO2 (both at ‘The O2 complex’ in North Greenwich), the Hammersmith Apollo (jointly owned with CTS Eventim, AG) and also a five year contract (recently awarded) to deliver summer concerts at Hyde Park. AEG’s UK turnover for the financial year ending 31 December 2011 was £[ ]. 2. Wembley City Estates Limited ('WCEL') is a wholly-owned subsidiary of Quintain Estates & Development PLC ('Quintain'), a UK-listed property company with major London developments at Wembley and the Greenwich Peninsula. WCEL is the owner of Wembley Arena ('Wembley Arena'). 3. Wembley Arena is an entertainment venue which originally opened in 1934. Following refurbishment as part of the regeneration of the 1 Wembley area in London, it re-opened to the public on 2 April 2006. Wembley Arena is primarily used for live music and entertainment events but also holds other types of events such as sporting events. Wembley Arena’s revenues were £[ ] in the year ending March 2012. TRANSACTION 4. On [ ], AEG Facilities entered into an agreement with WCEL to manage Wembley Arena (the 'Long-form Management Agreement') pursuant to which AEG Facilities would replace Live Nation Entertainment ('Live Nation') as the manager of Wembley Arena. The Long-form Management Agreement is conditional on regulatory clearance. As part of the same transaction, AEG Facilities entered into an interim management agreement with WCEL (the 'Temporary Management Agreement'), to manage Wembley Arena between the end of the termination notice given to Live Nation as the previous manager of Wembley Arena and the entry into effect of the Long-form Management Agreement, pending regulatory clearance of the latter. 5. For the purposes of its review, the OFT has considered the Long-form Management Agreement and the Temporary Management Agreement as a single overall transaction (the 'Management Agreement' or the 'Transaction').1 6. According to the parties, AEG Facilities started to manage Wembley Arena on 12 February 2013, effectively replacing Live Nation as the venue manager from that date. JURISDICTION 7. Under the merger provisions of the Enterprise Act 2002 (the Act) a relevant merger situation is created when two or more enterprises cease to be distinct or arrangements are in progress or contemplation which, if carried into effect, will lead to enterprises ceasing to be distinct and either the UK turnover of the enterprise being acquired exceeds £70 million (‘the turnover test’) or after the merger the enterprises which have ceased to be distinct together supply or acquire at least 25 per cent of a 1 The OFT also notes that the Long-form Management Agreement may in itself constitute a relevant merger situation. 2 particular good or service within a substantial part of the UK (’the share of supply test’).2 8. The OFT investigation has confirmed that enterprises have ceased to be distinct as a result of the proposed Transaction. For these purposes, the parties submit that the services provided under the Management Agreement constitute an enterprise. Overall, the OFT considers that the assets, rights and employees transferred to AEG are such as to constitute an enterprise.3 9. As stated above, Wembley Arena’s revenues were £[ ] in the year ending March 2012. As such, the turnover test set out in section 23 of the Act is not met. 10. The parties submit that AEG’s share of supply of indoor live music venues in London based on total maximum venue capacity will increase from 26 per cent to around 38 per cent post-transaction. The OFT considers that this is an appropriate measure for the purposes of the share of supply test in this case.4 11. The OFT therefore considers that the share of supply test is met as the parties have a combined share of supply of indoor live music venues in excess of 25 per cent, with an increment attributable to Wembley Arena, in London, which is a substantial part of the UK. 12. Therefore, the OFT considers that it is or may be the case that a relevant merger situation has been created as per section 23 of the Act. 2 OFT, Mergers: Jurisdictional and Procedural Guidance, June 2009, OFT527, paragraph 3.3. 3 According to OFT guidance, outsourcing arrangements involving ongoing supply arrangements will not generally result in enterprises ceasing to be distinct, but may do so where they involve the permanent (or long-term) transfer of assets, rights and/or employees to the outsourcing service supplier and where those may be used to supply services other than to the original owner/employer. (OFT, Mergers: Jurisdictional and Procedural Guidance, June 2009, OFT527, paragraph 3.13). 4 The OFT’s guidance says that when applying the share of supply test the OFT may have regard to the value, cost, price, quantity, capacity, number of workers employed or any other criterion in determining whether the 25 per cent threshold is met (OFT, Mergers: Jurisdictional and Procedural Guidance, June 2009, OFT527, paragraph 3.55). In AEG/Hammersmith Apollo (AEG + CTS Eventim / HMV Hammersmith Apollo, OFT, 1 August 2012), the OFT noted that measures other than the supply of live music venue services by the number of venues were more appropriate for the purpose of applying the share of supply test since there is such variation in the size of venues. 3 FRAME OF REFERENCE Industry background 13. Venue operators have two sets of customers, promoters who hire the venue for a particular event and end consumers who attend events at the venue. 14. Promoters are responsible for the organisation of the event and for selling the tickets. Promoters are allocated a percentage of the tickets to sell. The remaining tickets are allocated to the venue. 15. To sell tickets, promoters and venues generally appoint one or more ticket agents. Ticket agents own a large database of final consumer contact details, who they contact to promote the shows they are selling tickets for. Ticket agents may also use other marketing networks, such as radio stations and local newspapers. Ticket agents charge a booking fee on top of the ticket price (for example, 10 per cent of the ticket price), which represents most of their revenues and which is shared with their client (that is with the venue operator or the promoter). 16. Promoters usually guarantee artists a minimum revenue plus (in some cases) a percentage of the revenue generated through tickets sold above a certain level. The promoter’s gain is, broadly speaking, the difference between the revenues from ticket sales net of marketing and operational costs and the revenues passed on to the artist’s agent. Agents in turn retain a percentage (for example, 10 per cent) of the artist's revenues. 17. AEG operates as a venue operator and also as a promoter, through its subsidiary AEG Live and through promoter Marshall Arts (of which AEG is the largest shareholder with 49 per cent of shares).5 Product scope 18. The OFT’s starting point in identifying an appropriate frame of reference is generally to consider if the narrowest plausible candidate markets in which the parties overlap can be widened through substitution on the demand side.6 5 Further, AEG operates as a ticket agent through its ticket system AXS. 6 OFT and Competition Commission, Merger Assessment Guidelines, September 2010, CC2(Revised)/OFT1254 (the Merger Assessment Guidelines), paragraphs 5.2.10 to 5.2.12. 4 19. AEG and Wembley Arena overlap in the operation and management of indoor live entertainment arenas in London.7 AEG operates a number of entertainment venues around the world. Pre-merger, AEG operated The O2 Arena, the Hammersmith Apollo and the Indigo O2 in London. It has also recently been awarded a five-year contract to deliver summer concerts at Hyde Park. The OFT has therefore considered the relevant frame of reference in relation to venue services. 20. The parties submit that the relevant product market in which the impact of the Transaction should be assessed is the market for the operation and management of live entertainment venues and a narrower approach is not appropriate. 21. Based on the evidence gathered during its investigation, the OFT considered whether the candidate market in which the parties overlap – indoor live entertainment arenas – could be widened to include different venue types, including outdoor venues, indoor venues of different uses and configurations, and venues of different capacity levels. Each of these is considered in turn below. Type of venue Indoor and outdoor venues 22. The parties submit that indoor venues compete with outdoor venues, noting that this is particularly true in relation to The O2 Arena. In this regard, the parties have provided evidence of lower seasonal demand for indoor venues during the parts of the year where outdoor venues may also host live entertainment acts, as well as examples of acts initially booked at The O2 Arena which eventually performed outdoors (one at a stadium, two at public squares).